Post on 27-Sep-2020
1
US Equities: Emerging From The Abyss
Richard M. Bernstein, CFA
2
BROWN ADVISORY
4 $16.5 billion in client assets
4 $1 billion in European client assets
4 200 partners and employees
4 Employee owned
4 Headquarters in Baltimore
4 Offices in Washington D.C., New York and London
4 In-house strategies: US Equities and US Fixed Income
Brown Advisory was created in 1993 as a separate, focused group within Alex. Brown & Sons, America’s oldest investment banking firm. In 1998, Brown Advisory separated from Alex. Brown in the belief that its clients’ interests would best be served by independent ownership.
Mr. Bernstein has over twenty years of investment industry experience. Prior to joining Brown Advisory, he was Director of Research at Mercantile. He received his B.A. (1979) and his M.A. (1983) from Johns Hopkins University.
Richard Bernstein, CFA (full bio in appendix)
3
US EQUITY RESEARCH TEAM & STRATEGIES
US Equity Value Fund
MANEESH BAJAJ, CFAFinancial Services
CHRISTOPHER A. BERRIERBusiness Services (PM)
JOHN B. BISSON, CFAQuantitative
ERIC CHA, CFAConsumer Discretionary
RICHARD M. BERNSTEIN, CFAIndustrials (PM)
DARRYL R. OLIVER, CFA Consumer Staples
SUNG W. PARKGeneralist
MICHAEL W. POGGI, CFAIndustrials
DAVID B. POWELL, CFAIndustrials & Energy
CHARLES A. REIDHealth Care
J. DAVID SCHUSTERFinancial Services
KENNETH M. STUZIN, CFAMedia & Entertainment (PM)
PAUL J. CHEW, CFA Director of ResearchIT, Software
NICHOLAS P. COUTROSTechnology
DORON S. EISENBERG, CFAIT, Semi & Hardware
TIMOTHY HATHAWAY, CFAEnergy (PM)
PAUL LI, Ph.D., CFAHealth Care
US Equity Growth Fund US Smaller Companies Fund
"Our success is driven by being able to perform deep investment research on a broad universe of stocks, while maintaining a process that is highly collaborative."
—Paul Chew, Director of Research
4
US EQUITY VALUE STRATEGY: (Dublin UCITS III Fund)
8 A diversified portfolio of mid/large-cap companies
The strategy invests primarily in medium to large-cap US companies (generally no less than US $2 billion). We use a bottom-up, research intensive process with a rigorous valuation discipline to build a portfolio with attractive valuations and strong underlying fundamentals.
8 Targeting materially undervalued stocks of fundamentally strong companies
8 Deep fundamental research process
8 35-45 diverse holdings
8 Low portfolio turnover
8Market Cap >$2 billion
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BROWN ADVISORY FUNDS AVAILABLE UNDER DUBLIN UCITS III UMBRELLA
US Equity Value Fund
US Equity Growth Fund
US Smaller Companies Fund
• A diversified portfolio of mid/large-cap companies
• Targeting materially undervalued stocks of fundamentally strong companies
• 35-45 diverse holdings
• Market Cap > $2 billion
• A diversified portfolio of small-cap companies
• Targeting emerging companies with large market opportunity and a unique competitive position
• 40-60 holdings
• Market Cap < $5 billion
The American Fund
• A diversified portfolio of mid/large-cap companies
• Targeting companies with superior business models and above average growth potential
• 35-45 diverse holdings
• Market Cap > $2 billion
• A core strategy that combines our 3 in-house equity funds: 40% Equity Value, 40% Equity Growth and 20% Smaller Companies
• Provides investors with access to ‘best in breed’ American companies regardless of their size or style
• 110-150 holdings
6
EMERGING FROM THE ABYSS – Overview
4 The current environment is as challenging as it has ever been.
4 Even pessimists have been surprised by the global nature and size of the financial systems’ problems. At this point a global slowdown in 2009 is virtually unavoidable.
4 However, the equity valuations of a host of proven US companies are at, or near, record lows, especially compared to the interest rate climate.
4What is an investor to do?
4 A whole host of uncertainties make navigating this crisis extremely complicated: the scale, the unexpected connectedness, the duration, the unprecedented volatility…
4 Although we anticipate a long and volatile recovery period, we believe there are a large number of high quality US businesses that will be able to successfully emerge from this crisis and currently offer exceptional value to long-term investors.
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1) WHAT WE KNOW NOW
8
WHAT WE KNOW NOW
The financial crisis of a lifetime: A witch’s brew of contributing factors
4 Poor federal reserve policy, ridiculously easy money/credit
4 GSE’s on steroids, prescribed by our government
4 Bad accounting FASB “mark to market” (right idea but horrendous timing)
4 Repeal of the uptick rule, naked shorting, bear raids
4 Hedge fund structure as amplifier (no oversight and lots of leverage)
9
WHAT WE KNOW NOW
A postwar debt cycle has reached a crescendo
4 Crisis was underestimated, so government responses have been largely reactionary and iterative
4 Government policies are aimed at stabilizing asset values through rebuilding the credit system
4 Prior periods benefited materially from debt creation
4 Deleveraging makes future economic growth more challenging
10
DEBT CONTINUES TO CLIMB
11
WHAT WE KNOW NOW
The damage to Main Street has already been done…growth is slowing materially
4 Consumer confidence, ability to borrow, and willingness to continue pace of spending have all been impaired
4 Unemployment growth could worsen consumer intentions over the next year
4 Secular consumer spending growth may become more of a discussion point over the next several years as the baby boom generation approaches retirement age
4 Probably the most important recovery factor will be the time sufficient for households to rebuild savings, asset quality and system confidence; in our view, this is measured in years, not months
12
CONSUMER CONFIDENCE HITS ALL-TIME LOW – A BOTTOM?
13
UNEMPLOYMENT RISING
14
HAVE EXISTING HOME SALES BOTTOMED?
15
WHAT WE KNOW NOW
Corporate profit cycle was extended
4 Record share of profits for capital versus labor
4 Post 9/11 fiscal and monetary stimulus
4 Bush and McTeer, keep spending, buy an SUV
4 Emerging markets growth
4 Record pretax margin
16
RECORD PRETAX MARGIN
17
DRY BULK SHIPPING RATES FALL OFF A CLIFF
18
INDUSTRIAL PRODUCTION SLOWS – A BOTTOM?
19
2) WHAT WE DON’T KNOW
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How deep?
4 Market appears to be discounting a 40-50% decline in corporate profits; almost unprecedented
4 Will government stimulus packages mitigate the depth?
WHAT WE DON’T KNOW
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FINANCIAL CRISIS HAVE LEAD TO DEEP RECESSIONS…
Cumulat ive Loss in Out put Dur in g Recess ion s 1
Depen din g on t he Fin an cial S t at e of Af f air s
As a P er cen t of GDP
19 8 0 T hr ough 2 0 0 6
( 5 )
( 4 )
( 3 )
( 2 )
( 1)
0
P r eceded by Fin an cial Cr is is Not P r eceded by Fin an cial Cr is is
S our ce: Lall, S . , Car dar elli, R. an d S elim E lekdag, 2 0 0 8 . "Fin an cial S t r ess an d E con omic Down t ur n s , " I MF Wor ld E con omic Out look ( Oct ober ) ; E mpir ical Resear ch P ar t n er s An alys is .
1 Median Loss ; coun t r ies in cluded in t his s t udy ar e Aus t r alia, Aus t r ia, Belgium, Can ada, Den mar k, Fin lan d, Fr an ce, Ger man y, I t aly, Japan , Net her lan ds , Nor way, S pain , S weden , S wit zer lan d, Un it
%
Cumulative Loss in Output during Recessions depending on the Financial
State of Affairs
As a Percent of GDP, 1980 through 2006
Preceded by Financial Crisis
Not Preceded by Financial Crisis
%
0
-1
-2
-3
-4
-5
Source: Lall S., Cardarelli R. and Elekdag S. 2008. “Financial Stress and Economic Downturns” IMF World Economic Outlook (October); Empirical Research Partners Analysis.
22
S&P 500 Stocks Excluding Financials 1
Aggregate Declines in Earnings Per Share From Peak-to-Trough in Earnings
1950 Through 2009E
(50)
(45)
(40)
(35)
(30)
(25)
(20)
(15)
(10)
(5)
0
Mar. 1956 - Dec. 1958 Sept. 1959 - June 1961 Sept. 1969 - Dec. 1970 Sept. 1974 - Dec. 1975 Dec. 1981 - Mar. 1983 June 1989 - Dec. 1991 Sept. 2000 - Dec. 2001 Implied Decline ThisCycle
%
Source: Empirical Research Partners Analysis.1 Using trailing four-quarter earnings.
MARKET IS DISCOUNTING A (40)% DECLINE IN NON-FINANCIAL EARNINGS
%
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
S&P 500 Stocks Excluding Financials¹
Aggregate Declines in Earnings Per Share from Peak-to-Trough in Earnings
1950 through 2009E
Mar. 1956-Dec. 1958
Sept. 1959-June 1961
Sept. 1969-Dec. 1970
Sept. 1974-Dec. 1975
Dec. 1981-Mar. 1983
June 1989-Dec. 1991
Sept. 2000-Dec. 2001
Implied Decline this Cycle
Source: Empirical Research Partners Analysis
¹Using trailing four-quarter earnings
23
WHAT WE DON’T KNOW
How long?
4 Tough question as many previous economic and stock market declines were not the result of a credit cycle/asset value bust
4 Solutions are complicated as problems are global
4 Very few periods in stock market history where 10 year rolling returns have been this poor
4 History suggests that when consumer spending is this poor, subsequent stock market returns have been positive
4 Investor sentiment is already very depressed
24
THE LOST DECADES
8 The stock market is currently trading well below where it was nine years ago (chart below through February 2008)
8 The extended US-stock underperformance puts the current stock market in very bad company, the 1930’s, with its terrible unemployment, and the 1970’s with its double-digit inflation
Source: Morningstar; Note: The S&P 500 Index, which started in 1957, has been extrapolated back in time
25
3) LIVING THROUGH THE CRISIS
26
LIVING THROUGH THE CRISIS
Investor Psychology…
4 In contrast to 1999 where what could possibly go wrong, today’s attitude is, what can possibly go right
4 Our election, in part, was a reflection of this frustration
4 Flight to safety, T-bills versus everything else
4 Unprecedented media awareness and access drives short term thinking
4 A decade of scandals and lackluster equity returns has given investors new role models – Buffett and Peter Lynch are out, David Einhorn and SAC are in
4 Focus is not on what do I like about this company, but what can I find that I don’t like about this company
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0.00
0.50
1.00
1.50
2.00
2.50
1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 1 Yr
11/07/2008 T-Bills
10/01/2008 T-Bills
09/01/2008 T-Bills
TREASURY BILLS – FLIGHT TO QUALITY PUSHING RATES LOWER
28
CREDIT SPREADS WIDEN
0
200
400
600
800
1000
1200
1400
1600
1800
May
-97
Nov
-97
May
-98
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
May
-05
Nov
-05
May
-06
Nov
-06
May
-07
Nov
-07
May
-08
Nov
-08
Current (bps) 594 Current (bps) 1619Wides (bps) 618 Wides (bps) 1681
10/29/08 10/27/08Average (bps) 146 Average (bps) 551% of Wide 96% % of Wide 96%% of Average 408% % of Average 294%
Investment Grade High Yield
29
REMARKABLE VOLATILITY – ETFs represent one-third of the U.S. market trading volume
Source: Allan M Newman’s Stock Market Crosscurrents
Source: IndexUniverse
30
4) EMERGING FROM THE ABYSS
31
EMERGING FROM THE ABYSS
4 Valuations are attractive
4 Huge / diverse economy
4 Technology base remains substantial
4 Innovative / entrepreneurial culture
4 Favorable demographics
4 Quality, technology, innovation, and global reach are on sale
4 Fresh political start
4 First in, first out?
Why the U.S.?
32
U.S. VALUATIONS ARE ATTRACTIVE
33
FCF YIELDS OF NEARLY 8%
Large-Capitalization Stocks 1
Free Cash Flow Yields1952 Through Late-O ctober 2008
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
%
Source: Corporate Reports, Empirical Research Partners Analysis.1 Capitalization-weighted data.
Large-Capitalization Stocks¹
Free Cash Flow Yields
1952 through Late-October 2008
%
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
052 55 60 65 70 75 80 85 90 95 00 05 08
Source: Corporate Reports, Empirical Research Partners Analysis
¹Capitalization-weighted data
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EMERGING FROM THE ABYSS
4 Assume that 2009, perhaps even 2010 will be tough, and model companies accordingly
4 Financial strength and flexibility
4 Diversity of markets
4 Proven culture and history of innovation
4 Experienced management and history of mastering adversity
4 Positioned to benefit from secular trends coming out of this crisis
4 Depressed valuations that offer minimal downside risk and lots of long term upside
What are we doing?
35
PORTFOLIO… heavily skewed towards high quality, innovative, global businesses
Security % Equity Security % Equity1 MERCK & CO. INC. 6.7 20 CHEVRON CORP. 2.42 3M COMPANY 4.5 21 DELL INC. 2.23 DOVER CORP. 4.2 22 BJ SERVICES COMPANY 2.04 DIAGEO PLC. 4.1 23 CAPITAL ONE FINANCIAL CORP. 2.05 GENERAL ELECTRIC CO. 3.9 24 PARAMETRIC TECHNOLOGY CORP 2.06 ILLINOIS TOOL WORKS 3.9 25 MOLEX INC. 2.07 E I DU PONT DE NEMOURS & CO 3.8 26 CISCO SYSTEMS INC. 1.98 JOHNSON & JOHNSON 3.8 27 TALISMAN ENERGY INC. 1.99 UNILEVER 3.6 28 BB&T CORP. 1.9
10 CASH 3.4 29 M&T BANK CORP. 1.911 BANK OF NEW YORK MELLON CORP 3.3 30 VERIZON COMMUNICATIONS, INC. 1.912 MICROSOFT CORP. 3.1 31 PRUDENTIAL FINANCIAL INC. 1.813 INTEL CORP. 3.0 32 WATERS CORP 1.614 PROCTER & GAMBLE CO. 2.9 33 LINCOLN NATIONAL CORP. 1.615 FRANKLIN RESOURCES INC. 2.9 34 WALGREEN CO. 1.516 NOKIA CORP. 2.8 35 SYMANTEC CORP 1.517 BANK OF AMERICA CORP. 2.7 36 CONOCOPHILLIPS 0.918 CLOROX CO. 2.6 37 CITIGROUP INC. 0.719 STAPLES INC. 2.5 38 SEAGATE TECHNOLOGY 0.7
As of October 31, 2008
36
S to c kVa l®L C V 1 0 /3 1 /0 8 S -W td (L C V 1 0 3 1 0 8 ) P r ic e 2 3 .8 58 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1
P R IC E / YE A R -F O R W A R D E A R N IN G S6
12
18
24
30H I 2 7 .7 L O 9 .3 M E 1 7 .1 C U 9 .5
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
P R IC E / B O O K V A L U E0
2
4
6
8H I 7 .2 L O 1 .7 M E 3 .3 C U 1 .7
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
D IV ID E N D YIE L D %1
2
3
4H I 3 .7 L O 1 .0 M E 2 .1 C U 3 .6
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
D IV ID E N D YIE L D / 1 0 -YE A R T-B O N D YIE L D0.0
0 .3
0 .6
0 .9
1 .2H I 0 .9 7 L O 0 .1 6 M E 0 .3 5 C U 0 .8 9
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
U.S. Equity Value Portfolio — Absolute Valuation
Source: Brown Advisory
• The portfolio is trading at historic absolute lows
INEXPENSIVE
INEXPENSIVE
37
S to c kVa l®L C V 1 0 /3 1 /0 8 S -W td (L C V 1 0 3 1 0 8 ) P r ic e 2 3 .8 58 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1
E A R N IN G S -P E R -S H A R E0.3
0 .4
0 .6
0 .9
1 .3
1 .8
2 .6
H I 2 .5 9 L O 0 .3 9 M E 1 .1 1 C U 2 .5 5 G R 9 .3 %
1 2 -3 1 -1 9 8 80 9 -3 0 -2 0 0 8
R E TU R N O N E Q U ITY %12
15
18
21
24
27
H I 2 4 .1 L O 1 2 .7 M E 1 9 .2 C U 1 8 .0
1 2 -3 1 -1 9 8 80 9 -3 0 -2 0 0 8
G R O W TH R A TE E S TIM A TE10
12
14
16
18
20
22
H I 2 0 .1 8 •L O 1 0 .1 8 M E 1 6 .0 4 C U 1 0 .1 8
0 1 -1 8 -1 9 9 11 1 -0 6 -2 0 0 8
U.S. Equity Value Portfolio — Absolute Growth
Source: Brown Advisory
• A record of relatively reliable growth with solid profitability – now at low expectations
STEADY GROWTH
STABLE PROFITABILITY
ESTIMATES DOWN: more realistic levels
38
U.S. Equity Value Portfolio — Relative Growth
Source: Brown Advisory
• Eight years of underperformance - relative earnings growth recovering – expectations low
S to c kVa l®L C V 1 0 /3 1 /0 8 S -W td (L C V 1 0 3 1 0 8 ) P r ic e 2 3 .8 58 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1
P R IC E R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .8
1 .0
1 .4
1 .82 .2
H I 2 .0 4 L O 0 .9 8 M E 1 .3 3 C U 1 .2 5
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
E A R N IN G S R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .8
1 .01 .2
1 .6
2 .0 H I 1 .8 1 L O 0 .9 9 M E 1 .5 9 C U 1 .6 2 F Y1 1 .5 8 F Y2 1 .5 2
1 2 -3 1 -1 9 8 80 9 -3 0 -2 0 0 8
R E TU R N O N E Q U ITY R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .8
1 .0
1 .2
1 .4
1 .6H I 1 .5 5 L O 0 .9 8 M E 1 .2 9 C U 1 .1 6
1 2 -3 1 -1 9 8 80 9 -3 0 -2 0 0 8
G R O W TH R A TE E S TIM A TE R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D JU S TE D (S P 5 E ) E -W td0 .8
1 .0
1 .2
1 .4
1 .6H I 1 .4 9 •L O 0 .8 5 M E 1 .1 0 C U 0 .8 6
0 2 -0 1 -1 9 9 11 1 -0 6 -2 0 0 8
39
S to c kVa l®L C V 1 0 /3 1 /0 8 S -W td (L C V 1 0 3 1 0 8 ) P r ic e 2 3 .8 58 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1
P R IC E R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .8
1 .0
1 .4
1 .82 .2
H I 2 .0 4 L O 0 .9 8 M E 1 .3 3 C U 1 .2 5
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
P R IC E / YE A R -F O R W A R D E A R N IN G S R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .8
1 .0
1 .2
1 .4H I 1 .2 9 L O 0 .8 4 M E 0 .9 9 C U 0 .8 9
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
P R IC E / B O O K V A L U E R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .9
1 .2
1 .5
1 .8
2 .1H I 1 .9 9 L O 0 .9 3 M E 1 .2 8 C U 0 .9 3
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
D IV ID E N D YIE L D R E L A TIV E TO S & P 5 0 0 C O M P O S ITE A D J U S TE D (S P 5 E ) E -W td0 .6
0 .9
1 .2
1 .5
1 .8H I 1 .5 3 L O 0 .7 0 M E 0 .9 6 C U 1 .4 0
1 0 -2 8 -1 9 8 81 1 -0 6 -2 0 0 8
U.S. Equity Value Portfolio — Relative Valuation
Source: Brown Advisory
INEXPENSIVE
INEXPENSIVE
• The current portfolio’s relative valuation is near record lows
40
U.S. Equity Value Portfolio dividend yield vs. the 10-Year Treasury Bond
StockVal®BROW N ADVISORY LCV 10/31/08 S-W td (LCV103108) Price 23.4077 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
D IV ID END YIELD / 10-YEAR T-BOND YIELD0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.01
HI 0.96 LO 0.16 ME 0.35 C U 0.94
11-03-197811-11-2008
41
4 Established technology leader serving growing markets4 Inventories much lower than prior downturns, downside risk more manageable4 Strong finances and solid long-term prospects4 Near record low valuation with high free cash flow
EMERGING FROM THE ABYSS – Cisco
42
4 High-quality industrial serving diverse end markets with proprietary products4 Long record of fundamental success4 Strong finances and high free cash flow4 Record low valuation
EMERGING FROM THE ABYSS – Dover
43
4 Well respected industrial manufacturer serving numerous niche markets with highly engineered solutions4 Strong balance sheet and high free cash flow4 Consistent earnings growth record4 Record low valuation
EMERGING FROM THE ABYSS – Illinois Tool Works
44
4 Operates in a duopoly with substantial competitive advantages4 Secular growth through new product cycles and emerging markets4 Strong balance sheet on top of high free cash flow4 Near record low valuation
EMERGING FROM THE ABYSS – Intel
45
4 Arguably one of the best pharmaceutical R&D organizations in the world4 Upside through restructuring and product pipeline4 High-quality balance sheet with high free cash flow4 Record low valuation
EMERGING FROM THE ABYSS – Merck
46
4 Leading office supply retailer with ample opportunities to leverage its franchise both domestically and overseas4 Proven management team and business process4 Solid finances & attractive valuation
EMERGING FROM THE ABYSS – Staples
47
CONCLUSION
4 As credit continues to contract, economic activity next year is going to be very slow
4 Profit expectations for many companies will prove to be too optimistic
4 However, investor concerns have already reduced stock valuations to very depressed levels
4 Sentiment is awful
4 Quality, technology, innovation, and global reach are on sale
4 Buying good business franchises during such times has been very rewarding for the patient investor because such conditions do not remain static
48
Q & A
150 Brompton Road London
49
The The aftermathaftermath of the of the financialfinancial crisiscrisis21 November, 200821 November, 2008
ChiefChief economisteconomist Marie GiertzMarie Giertz
50
A historic fall…
51
How could it happen?
52
Systematic failure
53
Recession is a fact! The question is for how long?
54
Can Obama fix it?
55
Outlook
4 What is needed?– Stabilising interbank and money market – Stabilising mortgage and credit markets– Monetary stimuli– Fiscal stimuli– Bottoming of profits, business and consumer sentiment, housing market
4 When will we see a bottom?– Mid-year 2009– But below trend growth for many years
4 Risks– Geopolitical issues (Protectionism)– Inflation
56
Is the bull dead?
57
• Strategic Market & FTAs(Population of U.S. and FTAs is 560 million; U.S. 42% of Global Consumer Goods Market)
1
• Center for Global Innovation and Entrepreneurship(U.S. Responsible for 45% of Total World R&D Expenditures in 2006; 11.5% of Americans are Entrepreneurs)
2
• Strong Intellectual Property Right Protections(48% of the Patents Granted in 2006 by the U.S. Patent Office Originated from a Foreign Country)
3
• A Leader in Higher Education(Six of the Top Ten Universities in the World are in the U.S.)
4
• Highly Skilled Workforce(37% of the U.S. population 25 years and over has received at least an Associates Degree)
5
• Open to Cultures and Ideas(U.S. has more Irish than Ireland, Filipinos than Manila, Chinese than Hangzhou* and Poles than Warsaw)
6
1. Credit Suisse survey; 2 OECD, Main Science and Technology Indicators, May 2007, Florida International University/University of Michigan study, 2005; 3. U.S. Patent and Trademark Office; 4. The Times Higher Education Supplement 2006 (U.K.); 5. U.S. Census Bureau – Educational Attainment 2006; 6. U.S> Census Bureau, *Hangzhoucity proper
Investment Climate
58
FDI Trends
At $3 Trillion, the Estimated Combined Assets of Sovereign Wealth Funds will have a Major Impact on Global FDI Flows
Source: DB Research; Financial Times, May 25, 2007
59
Image of America
“Is this a bad time to talk about global warming?”
60
A Different Image
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61
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Partners for
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Sweden/U.S. AgreementJune 28, 2007
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How Big is One How Big is One GigatonGigaton of COof CO22
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66
67
Venture Capital RoundtableApril 19, 2007
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CHEMREC gasifier
Syngas
Grant funding:€8,2M EU€12,5M Sweden
Black Liquor-DME Pilot Project
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U.S. Ethanol Refineries
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Renewables Portfolio Standards
*WA:*WA: 15% by 202015% by 2020ME: ME: 30% by 200030% by 200010% by 2017 10% by 2017 -- new REnew RE
MN: MN: 25% by 202525% by 2025(Xcel: 30% by 2020)(Xcel: 30% by 2020) VT: RE meets load VT: RE meets load
growth by 2012growth by 2012
WI: WI: requirement varies by requirement varies by utility; 10% by 2015 goalutility; 10% by 2015 goal
☼☼ NH: NH: 23.8% in 202523.8% in 2025
MA: MA: 4% by 2009 +4% by 2009 +1% annual increase1% annual increase
RI: RI: 16% by 202016% by 2020
CT: CT: 23% by 202023% by 2020
☼☼ NY: NY: 24% by 201324% by 2013
☼☼ NJ: NJ: 22.5% by 202122.5% by 2021
☼☼ PA: PA: 18%18%¹¹ by 2020by 2020
☼☼ MD: MD: 9.5%9.5% in 2022in 2022
☼☼ *DE: *DE: 20% by 201920% by 2019
☼☼ DC: DC: 11% by 202211% by 2022**VA: 12% by 2022VA: 12% by 2022
☼ NC: 12.5% by 2021NC: 12.5% by 2021(IOUs)(IOUs)
10% by 2018 (co10% by 2018 (co--ops & ops & munismunis))
MO: 11% by MO: 11% by 20202020
IL: 8% by 2013IL: 8% by 2013
IA: 105 MWIA: 105 MW
ND: 10% by 2015ND: 10% by 2015
MT: MT: 15% by 201515% by 2015
☼ CO: 20% by 2020 CO: 20% by 2020 (IOUs)(IOUs)*10% by 2020 (co*10% by 2020 (co--ops & large ops & large
munismunis))
TX: TX: 5,880 MW by 20155,880 MW by 2015
☼☼ NM: NM: 20% by 202020% by 2020 (IOUs)(IOUs)10% by 2020 (co10% by 2020 (co--ops)ops)
☼☼ AZ: AZ: 15% by 202515% by 2025
CA:CA: 20% by 201020% by 2010
☼☼ **NV: 20% by 2015NV: 20% by 2015
OR: 25% by 2025OR: 25% by 2025 (large utilities(large utilities))5% 5% -- 10% by 2025 (smaller utilities)10% by 2025 (smaller utilities)
HI: HI: 20% by 202020% by 2020
☼☼ Minimum solar or customerMinimum solar or customer--sited RE requirementsited RE requirement* Increased credit for solar or customer* Increased credit for solar or customer--sited REsited RE
¹¹PA: 8% Tier I / 10% Tier II (includes nonPA: 8% Tier I / 10% Tier II (includes non--renewablesrenewables); SWH is a Tier II resource); SWH is a Tier II resource
State RPSState RPS
State GoalState Goal
Solar water heating Solar water heating (SWH) eligible(SWH) eligible
Source: DSIRE: Source: DSIRE: www.dsireusa.orgwww.dsireusa.org August August
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Opportunities Identified
• Ethanol and biogas• Gasification from biofuels• Waste to fuel• Biomass collection infrastructure• Converting boilers to biomass boilers• District heating• Pellets and pellets heating• Low energy housing
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